Wednesday, July 21, 2021

FLEET UPDATE: Aerolineas Argentinas replacement for E190 fleet still on hold after 737 MAX 8 and then E195-E2 were favored

Austral E190, LV-GIQ (c/n 716), taxis on a beautiful sunny day at Buenos Aires Aeroparque (AEP) on 29Mar18.  (Phil Perry Photo)

Aerolineas Argentinas started considering a replacement for the-then Austral and current Aerolineas E190 fleet back in 2017.  Although its oldest E190's were a relatively young seven years old having been delivered in 2010, there were several reasons why replacing the 26-strong E190 fleet appeared attractive:

Arguments in Favor of Replacing E190 

Economies of Scale Advantage of Larger and/or more Modern Aircraft over the E190

The next generation of the Embraer E190 series, the E190-E2has a similar seating capacity to the E190 but its geared turbofan engines and many other improvements give it a 12.9% lower operating cost per seat mile than the E190.  

The 162-seat 737-800's economies of scale advantage over the E190 give it a 27.3% lower seat-mile cost over the Brazilian-made aircraft.

Similarly, the 166-seat 737 MAX 8 has both economies of scale and the latest technology advantages over the E190 yielding seat-mile costs that are a whopping 40.2% less than the smaller and older plane. 

E190 Limited Cargo Capacity

The E190's cargo hold capacity is reportedly relatively small, so much so that there have reportedly been times when it has not been able to accommodate passenger luggage, with many pieces being forwarded to their destination on later flights. 

Fleet Commonality - Cost Savings

The Aerolineas Argentinas short-to-medium range fleet consists of the 96-seat E190 and 162-seat 737-800.  

Replacing the E190 with more 737-800's or 737 MAX 8's would save Aerolineas on training, crew type rating, spares, and maintenance costs.   
 
New Argentine Low-Cost Carriers operating 170+ seat Aircraft

New LCC's Flybondi and Jetsmart Argentina operate larger 737-800's and A320's respectively, with lower seat-mile costs than the E190, helping them to offer lower airfares than Aerolineas can using the smaller plane.  Switching to 737-800's or 737 MAX 8's would allow Aerolineas to compete with lower airfares, at least on routes with enough traffic to support larger aircraft. 

Twenty Proposals for E190 Replacement

In mid-2018, Aerolineas Argentinas requested proposals for the replacement of the E190 fleet from aircraft manufacturers, leasing companies and financial entities specializing in capital equipment financing.  

Twenty parties presented proposals in October of that year, including Airbus, Boeing, Embraer, AerCap, Aircastle, Air Lease Corporation, Aviation Capital Group, Avolon, Azorra, Boc Aviation, CFM, Falko, GE Capital Aviation Services, Jet Trading & Leasing, Macquarie, Nordic Aviation Capital, Pratt & Whitney, Regional One, SMBC Aviation Capital and Willis Lease.

Criteria for Lease / Purchase Decision 

The proposals were to be analyzed applying the following criteria:

* Cost of Lease or Purchase

* Valuation of Aerolineas E190 Fleet

One of the conditions of the Request for Proposals was that the winning bidder would purchase Aerolineas' used E190 fleet so the valuation placed on these aircraft by the bidder would be an important factor.    

* Leaseback Costs of E190's

The 26 E190's of Aerolineas would not be replaced all at once overnight but would likely be leased back from the winning bidder and retired gradually during the transition process to the new fleet.  The cost of the leaseback would be a factor for consideration of the various bids.

* Cost of Transition from E190's to Replacement Fleet

Costs of training flight crews and maintenance staff, spares supply, possible hangar modifications, etc. would be considered.  

* Negotiations with Aerolineas' Labor Unions   

Also to be taken into account in the bid / aircraft type selection process would be the proposed labor agreements requested by Aerolineas' unions for each  candidate replacement type.    

Replacement Aircraft - Most Important Characteristics

* Factory-new 
* State-of-the Art Technology
* Lower Fuel Consumption than E190
* Lower Environmental Impact than E190 
* Competitive Operating Costs   

737 MAX 8 Favored but MAX Grounding Put Plans on Hold 
  
Aerolineas aimed to analyze the different proposals and negotiate an agreement with one of the suppliers within 90 days.  Preliminary reports had the carrier favoring the 737 MAX 8 for its versatility and economies of scale on both short and long-range routes plus the favorable economics of having one family of aircraft, 737-800 / 737 MAX, for all of its short to medium range needs.  A tentative decision was apparently made at the end of 2018 to acquire the aircraft with Aerolineas' board set to meet in May 2019 to approve the acquisition.  

However, the grounding of the 737 MAX series in March 2019 after two deadly crashes in Indonesia and Ethiopia put Aerolineas' plans to acquire the aircraft on hold.  Although the first planes would not be delivered for a couple of years, ordering a type that was grounded for an undetermined amount of time seemed imprudent so the decision was made to ask the contract bidders to update their proposals once the MAX's grounding was lifted.     

Also, the devaluation of the Argentine peso from approx. 20 pesos to 40 pesos per USD between April 2018 and August 2018 effectively made any purchase or leasing arrangement in hard currency much more expensive plus the devaluation  hurt the Argentine economy.  Both of these factors could not have helped Aerolineas to move forward with any plans to replace the E190 fleet. 

E195-E2 Favored by New Presidential Administration 

Argentina had presidential elections in late 2019 with Alberto Fernandez defeating incumbent Mauricio Macri.  The continued weakness of the Argentine economy and the COVID-19 pandemic have led to the selection of an E190 replacement remaining on hold, even beyond the recertification of the 737 MAX series.

However, Aerolineas' new management under the new presidential administration expressed a preference in early 2020 for the Embraer E195-E2, typically with 138 seats compared to the 106 seats of the E190-E2, the successor aircraft to the E190.  The E195-E2 offers greater efficiency, enabling it to offer higher seating capacity without much higher operating costs.  The E195-E2 is better-suited than the 737 MAX 8 to Aerolineas' domestic route network, which includes many smaller cities that are loss-makers with larger aircraft. 

As of this writing in July 2021, there has been no further dialogue regarding replacement of Aerolineas Argentinas' Embraer E190 fleet.             

Sources:
Aviacion News - 16Jan20 

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